Authorization

Robinhood has a glitch thats letting users borrow far more than they should

A glitch in the the stock trading app Robinhood is allowing users to trade stocks with excess borrowed funds, and the company doesnt appear to have found a fix as of this writing.
According to Reddits WallStreetBets forum, and first reported on by Bloomberg, one trader bragged about a $1 million position funded by a $4,000 deposit. Another says he accessed $50,000 worth of purchasing power, which he used to buy Apple puts. He subsequently lost that money and posted a video of the wipe-out on YouTube (below).
Asked whether the issue has been resolved, how long it has been possible for users to exploit the platform, and for more information about the number of people whove taken advantage of it, a Robinhood spokesperson sent us a shortly worded statement that suggests this is far from under control, writing: Were aware of the isolated situations and communicating directly with customers.
This isnt the first misstep for Robinhood, a popular platform that caters largely to first-time investors with its no-frills, no-fees approach to investing.
In December 2018, the six-year-old, Menlo Park, Ca.-company which was raised $912 million from investors, much of it led by DST Global announced it was launching no-fee checking-and-savings accounts that would provide users with a 3% interest rate nearly double what other financial institutions offer.
More than 850,000 people signed a waitlist, hoping to access the product, before Robinhood quietly took down mention of the product, which had drawn scrutiny from regulators who said the accounts, as initially designed, would not be insured by by the Securities Investor Protection Corp. (The president of the SIPC further told MarketWatch that Robinood hadnt discussed the accounts with his agency before announcing them.)
The company last month announced a new, revamped push into banking via new cash-management accounts that pay 2.05% interest and reportedly come with the backing of the Federal Deposit Insurance Corp.
Robinhood has been clear about its ambitions to become a full service financial institution with every product one can find at a local bank branch and more, as its cofounder and co-CEO Vlad Tenev told us at an event last year.
Toward that end, it has made some moves to bolster its gravitas, including naming former SEC commission Dan Gallagher to its board of directors last month and last year bringing on as CFO Jason Warnick, whod spent two decades with Amazon previously, including as the companys VP of finance.
The start-up also applied in April to the Office of the Comptroller of the Currency for a national bank charter, though a federal judge dealt a blow to the agency late last month, ruling that it lacks the legal power to grant a bank charter to a nonbank entity that isnt eligible for federal deposit insurance.
Either way, allowing unsophisticated users to borrow exponentially more than theyre entitled to, or can presumably pay back, could prove an embarrassing setback for the fast-growing startup if its not addressed quickly and prevented from happening again.
Well update this story when we learn more.
See also:
Leave a comment
News
  • Latest
  • Read
  • Commented
Calendar Content
«     2020    »
 12345
6789101112
13141516171819
20212223242526
2728293031